Buy Now, Pay Later


Buy Now, Pay Later (BNPL) is a payment scheme that has recently taken the financial world by storm. The three biggest contenders; Klarna, Clearpay & Laybuy are reported to have made billions of dollars in 2020 alone. This form of credit has become so popular that other FinTech businesses such as Paypal and Monzo Bank have jumped on the bandwagon too.

Starting on clothing websites, BNPL schemes became a digital version of catalogue credit; allowing people to purchase clothing and pay it off in instalments, defer the payment date or return them without having to wait for a refund. The big difference with BNPL is that they don’t add any interest to the cost to the customer, instead they make their money by claiming a portion of the sale price from the retailers. While this is seen as a positive to the consumer, it only benefits them if the repayments are made in full and on time. Most of the current providers of BNPL (apart from Klarna & Monzo) state that they will charge a fee of around £6 for missed payments, though there are caps on the total amount and how many times these can be charged. It is also worth noting, that just like any other form of credit, a missed payment can be reported to the credit reference agencies which will have a detrimental impact on a person’s credit score.

BNPL may only have gained popularity in recent years, but spreading the cost or delaying payment isn’t a new concept by any means. Many department and store cards exist as a way for their customers to spread the cost of a purchase, though these cards also tend to carry higher interest rates, similar to credit cards, once any fixed term deal has expired.

BNPL providers are currently largely unregulated in the UK. Most widely advertise the fact they only require a soft credit search for applications, as are not required to follow consumer credit conduct rules. Not only does this make them more accessible to those with poorer credit, but it also speeds up the time to approval, satisfying those who require instant gratification for their purchases.

Some financial moguls have voiced their concerns over the lack of checks BNPL schemes require which could cause negative implications to those who already struggling with debt. They have called for this type of credit to become regulated under the Financial Conduct Authority (FCA) which the Government has approved. This will mean there will likely be more thorough checks required before applications are approved. Could this be the end of By Now, Pay Later?

Please note, none of these articles are intended to constitute financial advice and should be used for informational purposes only.